by Mark Beardsworth, Kevin Roberts, and Duncan Grieve

The UK authorities are taking further steps to bring crypto businesses within the regulatory perimeter. As of 30 August 2022, cryptoasset exchange and custodian wallet providers are required to comply with the reporting obligations implemented by the Office of Financial Sanctions Implementation (“OFSI”). Crypto firms are now required to inform OFSI as soon as practicable if they know or reasonably suspect a person is subject to sanctions or has committed an offence under financial sanctions regulations. Breach of a financial sanction is a criminal offence in the UK, punishable by up to seven years in prison and/or a monetary penalty.

This development is highly significant as there have been concerns that Russia may be using cryptoassets and exchanges to evade the financial sanctions imposed following its invasion of Ukraine by the UK, the United States, the European Union, Canada and Japan. UK action mirrors recent steps taken by the Biden administration. In August, the US Office of Foreign Assets Control imposed sanctions on a cryptoasset ‘mixing service’ that allegedly has laundered over US$ 7 billion over the past three years and follows an executive order signed earlier this year that enhanced the US government’s ability to restrict the use of cryptoassets in illicit finance.

Given the tragic human cost of the ongoing conflict in the Ukraine and the intensity of governmental, media and regulatory focus on financial sanctions, it seems highly likely that the crypto sector will be targeted for further investigation and enforcement by authorities on both sides of the Atlantic. Crypto businesses with a connection to the UK (including branches) should ensure that they have the appropriate systems and controls to comply with these new requirements. Continue reading →